The facts about unit pricing
Discussion about unit pricing has been a hot topic in the Australian press for months, but what is the debate really about? Australian Food News spoke with Dr Alan Kallir, who made a submission to the ACCC’s grocery price inquiry, and summarised other comments to simplify the issue.
What is unit pricing?
Unit pricing involves retailers providing a price per unit measurement on the price tag (e.g. $/kg) in addition to the sale price. Consequently, shelf price tags will need to have two prices shown on them.
Is it new?
Aldi has already introduced it in Australia this year but the concept was originally created overseas. It is already seen in use by member states of the EU, some US states including New York and Florida.
Who is supporting it?
Consumer advocate group CHOICE has been vocal in their support of unit pricing for about a year with Family First Senator Steve Fielding also passionate about the cause. Mr Fielding has already introduced legislation to the Senate regarding compulsory unit pricing for supermarkets.
Aldi was the first major supermarket chain in Australia to implement unit pricing in their stores and they believe it is important for consumer to have greater tools of comparison. “Unit pricing would further illustrate our price competitiveness and show customers just how competitive we are on a gram for gram/unit basis,” an Aldi spokesperson told CHOICE, before they committed to a new pricing system.
Woolworths has announced they will adopt a unit pricing system in all their outlets before the end of the year with Coles declaring on Monday that they too would throw their support behind the idea. “Our view is that unit pricing will benefit customers and we would prefer to see this adopted universally by all supermarket and food retailers across Australia,” Coles’ Chief Operating Officer, Mick McMahon, said. “Coles expects to be able to introduce full unit pricing over a period of about 12 months.”
Who is against it?
Coles and Woolworths were initially non-committal citing their beliefs that consumers did not demand unit pricing. However, with their support the numbers against unit pricing are dwindling, as companies are reluctant to come out and attack unit pricing for fear of consumer backlash.
The Australian Retailers Association (ARA) has, despite praising the intentions of Mr Fielding, questioned the ability of unit pricing legislation to benefit consumers.
“For any regular grocery shopper, it is a ‘no-brainer’ that prices will vary the more you buy,” ARA Executive Director, Richard Evans, said earlier this month. “However, the assumptions of reducing the amount of money handed over at the supermarket checkout is misleading as the final payment may indeed go up if the unit price was cheaper on greater quantities. Shoppers may get a better unit price but their actual cost will go up as they buy more.”
The primary argument is that it will cut costs for consumers.
Dr Alan Kallir, retail expert and Director of Insight Partners – a corporate advisory and consultancy firm, told the ACCC that past research solidified the belief that savings could be made. “Displaying the unit price and the total selling price, makes it easy for consumers to compare the prices of different brands and package sizes, and determine which product represents the best value for money,” he advised. “Research shows that consumers who were provided with unit prices on shelf tags spent around 1% less than those without unit-price information, for the same type and quantity of goods. And the savings were greater where the unit price was prominently displayed.”
The research cited by Dr Kallir was carried out in the UK and the US, during the time when unit pricing was causing debate in the two countries.
The potential saving per household per year could be about $100, according to Dr Kallir. “Of the estimated $128 Billion Australian households spend on food, beverages, alcohol and tobacco, about $81 Billion (or 63%) is spent on packaged goods where only the selling price is displayed. Assuming the introduction of unit pricing led consumers to spend 1% less on these items, they would save $810 Million per year – or around $96 per household per year,” he said.
CHOICE claim that consumers are disappointed with manufacturers who reduce the size of their product while maintaining the same purchase price. Consequently, CHOICE believe the initiative will put greater pressure on manufacturers as unit pricing will indicate the true price increase to consumers.
With all prices easily comparable between retailers supporters argue that competition will be strengthened in the supermarket industry. With decreased consumer spend and greater competition, a decrease in inflation is predicted to follow.
The enthusiasm of consumers has been another stimulant of debate with a CHOICE survey indicating that 89% would find comparative product pricing ‘very useful’ or ‘somewhat useful’.
The legislation would lead to an initial increase in cost for retailers, as pricing systems would need to be updated. However, Dr Kallir suggests that with electronic systems in place the costs will be able to be kept “very low”. Coles, for example, has indicated it will cost $10 million to update their systems; which effectively equates to a one-off expense of about 1.3% of the supermarket chain’s yearly profit.
Dr Kallir recommended that very small stores without electronic point of sale systems be exempt from the proposed legislation.
Dr Kallir also outlined a couple of implementation issues, suggesting that the government would need to introduce an education campaign and legislation would need to carefully outline the requirements of retailers.
Some manufacturers may be concerned about the impact on their brands due to a potential increase in sales of ‘home brands’. As home brands are typically cheaper than other nationally advertised brands, demand may rise for these goods impacting on some brand marketers. However, recent negative press about home brands could dampen the potential impact on national brands.
Why the need for legislation if the major supermarkets are already supporting it?
The primary reason is the need for conformity. Supermarkets would be required to show the unit prices in a way that is easy for consumers to see. A research study completed in 2000 found that consumers spent less when unit prices were more prominently displayed relative to when unit prices were less prominently displayed.
Placement of unit prices on tags and unit-based measurements would need to be the same at all retailers to guarantee ease of comparison for consumers.
While a powerful force, the major supermarkets are only part of the industry and legislation would ensure that consumers could compare all grocers in Australia.
The growing wave of support for unit pricing appears likely to ensure that the proposed legislation will eventually be passed through the Senate.
The Federal Government has, to date, kept their cards close to their chest on this issue and appear to be waiting for the ACCC’s report following the grocery price inquiry before making their decisions. This report is anticipated to outline the ACCC’s recommendations with regard to unit pricing and expect the debate to heat up when it is released on July 31.